KUALA LUMPUR, July 24 — MIDF Amanah Investment Bank Bhd (MIDF Research) expects the government to keep retail fuel prices status quo at least until the end of 2023, subsequently reducing overall inflationary pressure moving forward.

The research house said this following the deceleration of June 2023’s headline inflation which moderated to 2.4 per cent year-on-year (y-o-y), the slowest rate since April 2022, along with a lower non-food inflation rate which inched down marginally to 1.2 per cent y-o-y.

According to MIDF Research, fuel price growth shrank by 3.8 per cent y-o-y in June 2023, the weakest since March 2021, as it moved in tandem with the normalisation of commodity prices and high base effects.

"We believe the government would keep the current fuel subsidy mechanism status quo, particularly on RON95 and diesel, at least until the end of 2023.

"Hence, we foresee fuel inflation to stay on a deceleration path and reduce the overall inflationary pressure,” it said in a statement today.

Currently, the retail price of RON95 is RM2.05 per litre and diesel at RM2.15 per litre.

On food inflation, which softened to a more than one-year low of 4.7 per cent y-o-y in June 2023, MIDF Research expects Malaysia’s domestic food inflation to decelerate further following the mild correction of global commodity prices, particularly agriculture-related prices and improving supply chain regionally and domestically.

"As a net importer of food, Malaysia is highly exposed to external factors and currency movements.

"Apart from the depreciating ringgit, Malaysia’s food prices are exposed to Russia’s withdrawal from the grain deal recently, El Nino impacts, and changes of food-exports policy by other countries,” it said.

On the overnight policy rate (OPR) adjustments, MIDF Research opined that the steady domestic demand, coupled with sticky core inflation which lingered above three per cent y-o-y in June 2023 (average pre-pandemic level was 1.7 per cent y-o-y), may lead Bank Negara Malaysia (BNM) to consider another 25 basis points (bps) hike in the second half of 2023.

Overall, it maintains its CPI forecast at three per cent for 2023. — Bernama